WASHINGTON The futures regulator acknowledged on Wednesday it will miss the January target for issuing a final rule on limiting the amount of contracts a trader can control in agricultural, energy and metals markets.
The U.S. Commodity Futures Trading Commission will also propose phasing in position limits, putting them first on the spot month and then deferred months or positions in all months combined. The CFTC will unveil the details of its plan on Thursday in its almost three-year crusade to prevent a repeat of the 2008 surge in commodity prices to record highs.
Market participants already had doubts the CFTC would meet the mid-January target for implementing position limits as required under the new financial reform law. Some Republican lawmakers, exchanges and large investors have urged the CFTC to move more slowly to prevent curtailing liquidity and increasing market volatility.
CFTC Chairman Gary Gensler told a House Agriculture subcommittee that a final rule would be issued "as soon as we can sort out" the public comments on the proposal, which would be open to comment for 60 days. The Agriculture Committee has jurisdiction over CFTC.
"We'll not finalize it by the statutory date," said Gensler.
Gensler did not suggest the level at which limits would be set. He said a formula could be used at first, with details added later.
Gensler and CFTC Commissioner Bart Chilton said spot month limits would be easier to implement than limits that cover multiple months.
"The spot month, we could do now," said Chilton, and base it on a fraction of the deliverable supply. CFTC considered a similar approach when it looked solely at energy limits.
Gensler said spot-month limits "could be phased in sooner than the all-month limits."
"The commission could consider proposing single-month and all-months-combined position limits based on the open interest for futures, options and economically equivalent swaps," he said.
Republicans on the panel said CFTC should move more slowly. Frank Lucas, who will become Agriculture Committee chairman in January when Republicans take control of the House of Representatives, said he was "willing to consider an easing of statutory deadlines."
Jerry Moran, who will become a senator in January, said CFTC was rushing to issue a rule before it has adequate information on market size or appropriate limits.
In an interview last week, Lucas said he expected to hold hearings next year to review CFTC rule-making for derivatives, which are being brought under federal oversight for the first time.
Chilton said he believed a delay would be the wrong approach. In prepared remarks, he said futures prices should be based on the fundamentals of supply and demand. "We saw delinked commodity prices in 2008 and some of us are concerned that we see that taking place this year," he said.
Separately, CME Group Inc Executive Chairman Terrence Duffy took aim at the CFTC's push to control speculation in commodities trading, saying on Wednesday that position limits on investors' holdings are not a "costless palliative.
Such limits will not bring down overly high prices because they do not apply to the underlying cash markets, Duffy told the House panel.
He said the CFTC should not try to set limits before it has more information on the over-the-counter swaps markets, where vast numbers of contracts change hands away from the eyes of regulators.
"Without a thorough understanding of such data, the commission runs the risk of inappropriately setting position limits," Duffy said .
(Reporting by Charles Abbott and Tom Doggett in Washington; additional reporting by Ann Saphir in Chicago; Editing by Lisa Shumaker)